Financial planning: Time still to refinance

Investors looking for returns from “risk free” investments are frustrated with low interest rates. However, the flip side is that borrowing is cheap. The place to start reviewing your debt structure is with your mortgage. If the rate is high, refinancing, even after closing costs, can make for big savings over time.

Rates are at lows not seen in many decades and are not likely to go lower: 30 year fixed mortgages are as low as 4.75% in Massachusetts.

However, if you have not dealt with banks in a few years, be prepared for a very different experience. The lenders that were willing to do “no-doc loans” a few years ago want more documentation that you can believe, much of which may not even seem reasonable.

And even if you do qualify for a loan, recent home buyers may not have enough equity as their homes will appraise for much less than what they paid, which may not leave enough equity for the bank loan to value ratios.

What type of loan is best? This depends on what you do with any cash saved by using a mortgage with a lower monthly payment. If you invest well, then that may be best. If you will just spend the money, then a 15 year mortgage may be better for you than a 30 year, as the rate will be lower and the higher payment will pay off the mortgage much faster (look for our iPod app on this and other mortgage issues).

Let us know if you have questions or comments. Thanks,